One of the issues that I’ve been discussing with Paul is the microeconomic impact of Hurricane Katrina on middle class homeowners in New Orleans. One thing that could really hurt the region is the loss of equity for homeowners whose dwelling were not destroyed by the storm. Imagine you own a home in the New Orleans area that is (with some repairs) completely habitable. Those homeowners probably have a large majority of their net worth tied up in home equity. A crash in real estate values (which seemed likely) would have dealt an second blow to those folks – the kind of loss not covered by disaster assistance.
The Los Angeles Times reports that real estate values are, if anything, rising.
BATON ROUGE, La. (LA Times) – Brandy Farris is house hunting in New Orleans.
The real estate agent has $10 million in the bank, wired by an investor who has instructed her to scoop up houses any houses. “Flooding no problem,” Farris’ newspaper ads advise.
Her backer is a Miami businessman who specializes in buying storm-ravaged property at a deep discount, something that has paid dividends in hurricane-prone Florida. But he may have a harder time finding bargains this time around.
In some ways, Hurricane Katrina seems to have taken a vibrant real estate market and made it hotter. Large sections of the city are underwater, but that’s only increasing the demand for dry houses. And in flooded areas, speculators are trying to buy properties on the cheap, hoping that the redevelopment of New Orleans will start a boom.This is good news for homeowners who intend to permanently relocate to places like Baton Rouge, Houston, Memphis, etc.
Why is the market so optimistic?
These eager would-be buyers may be drawing their inspiration from Lower Manhattan, which proved a bonanza for those smart enough to buy condos there immediately after the Sept. 11 attack.
Of course, in southern Louisiana, everything is hypothetical for the moment. The storm destroyed many property records and displaced buyers, sellers, agents and title firms, so no deals are actually being done. Insurance companies haven’t started to settle claims yet, much less determine how, or whether, they will insure New Orleans in the future. The city hasn’t even been drained.
But people are thinking ahead, influenced by a single factor: the belief that hundreds of billions of dollars in government aid is going to create a boomtown. The people administering that aid will need somewhere to live, as will those doing the rebuilding. So will employees of companies lured back to the area, and the service people that attend to them.
All this will lead to what Sterbcow delicately calls a “reorientation” of the city.Unfortunately they won’t be “reorienting” the city to sit above sea level…